Fisker Automotive Firing as Much as 75% of Workforce

Henrik Fisker, the auto designer who co-founded the company, quit last month over unspecified disagreements with other executives. Henrik Fisker declined to comment about the job cuts. Photographer: Peter Foley/Bloomberg

April 6 (Bloomberg) -- Fisker Automotive Inc.’s mass
firings after receiving federal loans to build luxury plug-in
cars is adding to the political debate over the U.S.
government’s funding of clean-energy programs.

Most of the assets of Fisker’s battery supplier that
received a $249.1 million federal grant, the former A123 Systems
Inc., were acquired last year by a Chinese company. Now Fisker,
awarded $529 million in U.S. loans, is firing 75 percent of its
workforce after failing to secure a deal with an automotive
partner to fund operations.

The debacle is reviving questions over whether the
government should be funding makers of alternative energy
ventures. Fisker and A123, whose bankruptcy halted Fisker’s
output, have drawn Republican criticism of President Barack
Obama’s support of green-energy programs intended to spur more
fuel-efficient cars.

“The Department of Energy has never owned up to its
mistakes and acknowledged it didn’t do a good job of choosing
Fisker and A123 as worthy of taxpayer investment,” Senator
Chuck Grassley, an Iowa Republican, said in an e-mailed
statement.

Another Republican, Senator John Thune of South Dakota,
predicted “the company could go bankrupt and cost millions of
taxpayer dollars.”

Fisker, the maker of rechargeable $103,000 Karma sedans,
told a “core group of employees in Southern California” this
week of the plan and expects about 25 percent of workers to
stay, the Anaheim, California-based company said in an e-mailed
statement. Fisker said last week it had about 200 employees.

Seeking Help

“Our efforts to secure a strategic alliance or partnership
are continuing in earnest, but unfortunately we have reached a
point where a significant reduction in our workforce has become
necessary,” the carmaker said in the statement. The cuts are a
“strategic step in our efforts to maximize the value of
Fisker’s core assets,” the company said.

Fisker has struggled since stopping assembly of Karma
sedans last year when A123, the supplier of the car’s lithium-ion batteries, filed for bankruptcy. Fisker’s access to U.S.
loans was blocked in 2011. Henrik Fisker, the auto designer who
co-founded the company, quit last month over unspecified
disagreements with other executives.

About 160 people at the company were told yesterday that
they were being fired, said two people familiar with the matter
who were not authorized to discuss it publicly. Fisker, in its
statement, said it met with discharged employees, without
providing a number.

Talks Collapse

Last week, China’s Dongfeng Motor Group Co., a carmaker
that had considered buying a stake in Fisker, said those
discussions were over. Fisker has repeatedly declined to
identify specific companies it’s talking to.

The closely held carmaker retained restructuring lawyers
from Kirkland & Ellis LLP, said a person familiar with the
matter who declined to be identified because the move isn’t
public. The law firm’s corporate bankruptcy and restructuring
practice is one of the biggest in the U.S.

Fisker, founded in 2007, has sold about 2,500 Karma plug-in
cars. The company has said it was seeking investors to raise
funds for a second model, the Atlantic, to be priced lower than
the Karma.

Celebrity Customers

Fisker, with celebrity customers including singer Justin
Bieber and actor Leonardo DiCaprio, has raised more than $1
billion from private sources, including Silicon Valley investor
Kleiner Perkins Caufield & Byers, and was awarded $529 million
in low-interest federal loans in 2009 to develop and build its
plug-in hybrid cars.

That hasn’t been enough to sustain operations after a slow
startup, technical flaws that led to two Karma recalls and the
bankruptcy of A123, also a recipient of federal funds. The
Waltham, Massachusetts-based battery supplier, bought last year
by China’s Wanxiang Group Co., said last week in a U.S.
regulatory filing that it changed its name to B456 Systems Inc.

Fisker reached a settlement this week with B456 that
reduced its claims by 89 percent to $15 million.

Fisker said last year that the Energy Department blocked
access to its loans after the carmaker failed to meet an initial
timetable for Karma deliveries.

Funding Halted

“The Department of Energy stopped payment on the federal
loan in 2011 after Fisker stopped meeting their milestones, and
is committed to the best outcome for taxpayers,” Aoife
McCarthy, an Energy Department spokeswoman in Washington, said
in an e-mailed statement.

“Despite Fisker’s difficulties, our overall loan portfolio
of more than 30 projects continues to perform very well, and
more than 90 percent of the $10 billion loan loss reserve that
Congress set aside for these programs remains intact,” McCarthy
said.

Fisker’s Karma goes as far as 40 miles (64 kilometers) on
electricity before a gasoline engine kicks in. The company’s
U.S. loans came from the Advanced Technology Vehicle
Manufacturing program created under President George W. Bush to
help automakers build more fuel-efficient cars and trucks.

The Obama administration approved Fisker in 2009 for loans
of $169 million for engineering of the Karma and $359 million
for production of the lower-priced Atlantic, to be built at a
U.S. factory. Karma was designed in the U.S. and built under
contract by Valmet Automotive Oy in Finland, an arrangement set
before it got the loans.

Fisker said it had drawn down $193 million from its low-interest loans when access to the remaining portion was blocked.
Work on a Wilmington, Delaware, plant where Fisker wanted to
build the Atlantic stopped more than a year ago as a result.